Robert Law, in his capacity as a trustee for a trust, asked the trial court to enter a charging order under ORS 70.295 against the four limited partnerships that Ronald Zemp was partner of for Zemp’s refusal to pay a money judgment. The trial court granted Zemp’s request, instructing the limited partnerships to pay to Law “any and all distributions, credits, drawings, or payments due to” Zemp. In addition to the redirected payments, the trial court imposed four obligations on the companies: (1) the companies were prohibited from making any loans until the judgment was paid; (2) the companies and their members were prohibited from transferring, modifying, or encumbering any partnership or membership interest without approval from the court or from Law until the judgment was paid; (3) the companies were required to open their books and certain tax records for inspection by Law; and (4) the companies were required to provide future financial statements to Law. Finally, the court allowed Law to seek modification of the charge order to allow for appointment of a receivership and the foreclosure of Zemp’s interests in the companies.
JUDGE LAGESEN Was the trial court authorized to enter the challenged provisions in its order against the limited partnerships? We conclude that it had the general authority to issue such orders, but that the trial court acted outside its discretion in imposing the restriction on loans, and the restriction on the partners’ ability to encumber or transfer their partnership interests.
As noted, ORS 70.295 states:
“On application to a court of competent jurisdiction by any judgment creditor of a partner, the court may charge the partnership interest of the partner with payment of the unsatisfied amount of the judgment with interest. To the extent so charged, the judgment creditor has only the rights of an assignee of the partnership interest. This chapter does not deprive any partner of the benefit of any exemption laws applicable to the partner’s partnership interest.”
The companies point out—correctly—that, unlike ORS 67.205, ORS 70.295 does not state that a trial court may make additional orders in aid of enforcement of a charging order. From that omission, the companies’ reason that the legislature did not confer upon a trial court the same authority to enforce a charging order against a limited partnership by ancillary orders that it conferred upon a trial court with respect to charging orders against general partnerships.
That argument, although a plausible reading of the text of ORS 70.295, loses force when the text of the statute is considered in context. In particular, the argument overlooks ORS 70.615. That statute states, “In any case governing limited partnerships that is not provided for in this chapter, the provisions of ORS chapter 67 govern.” In other words, the provisions of the RUPA supplement the provisions of the RULPA. And, in particular, as the many other courts to have considered the question have concluded, the remedy provisions of the charging order statute in the RUPA supplement the charging order statute in the RULPA.
Those remedy provisions provide a court that issues a charging order against a limited partnership the same authority that it has when issuing a charging order against a general partnership: the authority to “make all other orders, directions, accounts and inquiries the judgment debtor might have made or that the circumstances of the case may require.”
The New Hampshire Supreme Court’s decision in Baybank v. Catamount Constr., is illustrative and on point. There, the court considered whether “the appointment of a receiver and sale of a charged partnership interest are authorized under the charging order provision of the” uniform limited partnership act. To resolve that issue, the Supreme Court looked to the relevant provisions of both the uniform limited partnership and general partnership acts. As an initial matter, the court noted that the Uniform Limited Partnership Act “provides that [i]n any case not provided for in this chapter the provisions of the Uniform Partnership Act shall govern.” Then, the court cited the charging order statute from the Limited Partnership Act—which is identical to the wording under Oregon’s act—and concluded that that “section does not provide a method for enforcing the charging order.” Based on that conclusion, the court further concluded that it should look to the terms of the Uniform Partnership Act in order to determine whether the trial court exceeded its authority in issuing the charging order:
“We therefore find that [the charging order statute of the limited partnership act] does not ‘provide for,’ a case such as this, and that the legislature intended that reference be made to the [uniform partnership act] for the means of enforcing the creditor’s rights in the charged partnership interest.”
Because the mechanisms for enforcing a charging order against a partnership included a receivership and sale, the court concluded that those mechanisms were available to enforce a charging order against a limited partnership… Thus, under our construction of the partnership statutes, the trial court had the authority to enter ancillary orders in aid of the enforcement of the charging order to the extent those ancillary orders were ones that “the judgment debtor might have made or that the circumstances of the case may require.” The question, then, is whether the challenged provisions either were directives that Zemp himself, the judgment debtor, could have made and, if not, were ones “that the circumstances of the case may require.”
The orders requiring disclosure of financial information plainly were ones that “the judgment debtor might have made.” A partner in a limited partnership has a right to obtain that information. As a result, the trial court acted within its discretion by requiring that the limited partnerships provide Law with the specified financial information.
We conclude otherwise with respect to the provisions of the order (1) restricting the limited partnerships from making loans; and (2) restricting the limited partners from encumbering or transferring their interests. We are unable to locate anything either in the statutes governing partnerships or limited partnerships, or in the record, that indicates that Zemp would have had the authority to make those directives. Beyond that, the trial court does not appear to have determined that those provisions are ones that “may be required” by the particular circumstances of this case, and the record developed before the trial court does not indicate why those additional restrictions on the limited partnerships “may be required” to ensure that the limited partnerships comply with their obligations under the charging orders. For that reason, on this record, the imposition of those provisions was beyond the court’s discretion, and we vacate those provisions as to the limited partnerships.
For the foregoing reasons, we vacate the trial court’s order and remand for further proceedings consistent with this opinion.
CRITICAL THINKING:
Although the appeals court ruled that the trial court had exceeded its authority in this case, the appeals court did note that courts do have the authority to issue charge orders against limited partnerships in addition to general partnerships. What reason did the appeals court give for this statement? Do you agree? What additional information would be needed to contradict the appeals court?
ETHICAL DECISION MAKING
Who are the stakeholders involved in a charge order involving a partner who has a judgment against her and her partnership?